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Salesforce.com on the Prowl for More Acquisitions

News Analysis: CEO Marc Benioff says he's keeping an eye out for other companies to buy as he looks to top the billion-dollar revenue mark.

NEW YORK—Shortly after announcing on Aug. 21 that Salesforce.com had acquired the small software development company Kieden, CEO Marc Benioff confirmed that he is indeed on the lookout for additional acquisitions.

"Were paying attention to what customers want us to do," Benioff said during an Aug. 22 interview with eWEEK at a Salesforce for Google AdWords kickoff luncheon here. "Kieden was really the only company that had Google AdWords," software that enables marketers to track the success of their Google advertising campaigns—and track down leads generated from ad clicks.

Kieden is Salesforce.coms second acquisition. In April it bought Sendia, which makes wireless software delivery tools.

While Benioff did not specify which software areas he would look to for potential acquisitions, he did say what he is not looking for: a large acquisition that will require a lot of integration to Salesforce multitenant CRM (customer relationship management) software, and an acquisition in a market where there is already a lot of competition.

"If there are lots of players we may not want to go in there," said Benioff.

Kieden is a good example of what Benioff is looking for. The San Francisco-based company is a startup in the true sense of the word; its first day in business was last January. The company was started by three partners (two are veterans of Salesforce.com rivals Oracle and SAP) who had met at webMethods, an application integration company that has just the sort of capabilities Salesforce is looking to tap with its AppExchange platform.

By the time Kieden was acquired by Salesforce, it had racked up four employees, 730 test drives of its software (on AppExchange), and 170 registered users—45 of which became customers. Its software, which tracks the efficacy of Google advertisements for Salesforce.com customers, has been in "public" beta since May 24, according to Kraig Swensrud, the founder of Kieden.

More importantly, what attracted Kieden to Benioff is that the company has its roots in Salesforce.com. It developed its Google AdWords software on AppExchange—a software development, integration, runtime and trading community platform for third-party companies.

"We prototyped two versions [of our software] in the first couple weeks, one on AppExchange and the other on our servers," said Swensrud. "As a small business, AppExchange was extremely important to us. It was a platform and software stack that was already there."

AppExchange, announced just 11 months ago, is equally important to Benioff. Its where he found Kieden—and where he is looking for other companies that might be a good fit for Salesforce.

"Were not trolling AppExchange," said Benioff. "Were watching what the customers are using."

Billion-dollar man?

For a company that started out with a lofty goal 10 years ago—to end the software model as we know it, one based on license revenues and on-premise implementations—Salesforce.coms aims dont seem as far-fetched as they once did.

Major software developers Microsoft, Oracle and SAP (particularly Microsoft) all talk about beating Salesforce.com—a fact that demonstrates the companys impact on the market and on the growing acceptance of software delivered as a service. At the same time, Salesforce reached 500,000 subscribers for the first time in its second quarter, reported Aug. 16, and revenues rose 64 percent, to $118 million. AMR Research released a report Aug. 22 pointing to Salesforce as a leader in the on-demand CRM sector, with 44 percent market share.

And while the mantra at Salesforce is still akin to "the death of software," Benioff has set a new goal: $1 billion in annual revenues and 1 million customers. While he declined to outline a timeframe for reaching the goals, the company has a good chance of getting there, according to analysts.

"The bottom line is their core SFA [sales force automation] product is still firing on all cylinders on a quarterly basis. Within the next two to three years alone they should be able to [reach] a million subscribers," said Michael Nemeroff, senior vice president of research at Wedbush Morgan Securities.

Nemeroff predicts that it will take a million subscribers for Salesforce to reach $1 billion in revenue. "Last quarter, their average revenue per subscriber was $75.25," he said. "That average has been going up for the last two quarters, where previously it was declining. Its an important metric [showing that] the company has a lot of levers to pull with the existing customer base."

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